Posted: 12/20/2011 4:32:44 PM EDT
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Our lease is up in July, and we were thinking about buying a home around that time. We have a down-payment ready.
With about five million homes on the (shadow) inventory, and I think many more on the way, I'm tempted to wait an extra year to see if prices go even lower. Many homes here have been "hammered" in price already. (Maryland) But more decline is certainly possible. I expect the economy to get much worse in the near-future. My question is, how will financing likely be affected by all the crap happening here and in Europe? I know we can find a house, but without financing, it won't be much use. Any input is appreciated. Thanks |
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Our lease is up in July, and we were thinking about buying a home around that time. We have a down-payment ready. With about five million homes on the (shadow) inventory, and I think many more on the way, I'm tempted to wait an extra year to see if prices go even lower. Many homes here have been "hammered" in price already. (Maryland) But more decline is certainly possible. I expect the economy to get much worse in the near-future. My question is, how will financing likely be affected by all the crap happening here and in Europe? I know we can find a house, but without financing, it won't be much use. Any input is appreciated. Thanks I think financing will be available until the final nail is ready to be put into our coffin. You might want to consider the following: Will you be buying in a state that automatically has a "Non-Recourse" provision in your loan contract? That means if times get too tough you can jinglemail your keys to the bank and have much less legal exposure than if your loan is Recourse. If you refinance like everyone likes to do, generally the Non-Recourse provision is eliminated and now your wife, kids, and dog, as well as any assets you have are at risk to the bank. Many folks here have posted about refinancing and when this is pointed out they usually start yelling LALALALA and bury their heads in the sand.  Or like a friend who refinanced when I asked if he considered this, got pissed off.
Another question is how secure is your ability to make the monthly payments and if you can't are you in an area where the banks let you continue to live in the house while threatening you with a wet noodle because they REALLY DON'T want to acknowledge all their non-performing loans they have on their books and let you stay while writing a bunch of letters to you. There are MANY folks in the US still living in their homes 2 years later after being threatened w/ foreclosure and not making payments. That would be a tough way for me psychologically to live but it seems for many who have an adversion to reality it makes no difference especially since they can divert their house payment $$$ to dining out, more drugs, flatscreens, and new cars. But reality will eventually catch up then they go BK and start the process over. Will house prices continue to fall. I don't see any other senario. We're in a period of overall deflation where our 'productive' assets fall in value [because our 'productive industry' has pretty much been over-regulated and destroyed], and the 'little' stuff like food and fuel go up. Would you be better off renting? Could you rent for less than buying while you scope out where you think the economy and country are heading? Renting would give you a lot of flexibility if you needed to relocate for a job or other reason. These are some issues your realtor and bank won't mention to you. |
| We rented until we found the place that fit all of our needs and could easily afford. While renting allows you freedom and mobility my problem was it never allowed me to feel prepared with my family. Now with our house I can get my stuff in order and it is our place. Prices will fall but if you find a place you like throw in a low ball offer. You might get it. |
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Thanks for the replies. I have been thinking about many of things that you identified. In Maryland, the bank has recourse for jingle mail. Even if prices decline, I'd hate to lose the chance of 4% financing. I agree with not wanting to loose the 4% loans, but they may come down more as the next wave of foreclosures arrives. This time it looks like folks with higher incomes will be affected, but IDK. It's a mess. I'd try to buy a place that would be a good BI location. Fixed reversal of non vs recourse in prior post. Thanks!! |
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Thanks for the replies. I have been thinking about many of things that you identified. In Maryland, the bank has recourse for jingle mail. Even if prices decline, I'd hate to lose the chance of 4% financing. I agree with not wanting to loose the 4% loans, but they may come down more as the next wave of foreclosures arrives. This time it looks like folks with higher incomes will be affected, but IDK. It's a mess. I'd try to buy a place that would be a good BI location. Fixed reversal of non vs recourse in prior post. Thanks!! Exactly this... and you're in a buyer's market. If it's not what you want, walk away. |
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"I'd try to buy a place that would be a good BI location. Fixed reversal of non vs recourse in prior post."
I am looking HARD at the bug-in assets of any property we buy. I don't understand the second sentence above. If you could clarify for me, that would be great. Thanks for the feedback so far. |
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When it comes to home financing, there are historical precedents.
Anything short-term and/or adjustable will kill you. It's quite simple. You buy today at a low low rate of say 6%. You need to refinance in 5 years, and the term then has shot to something stupid like 13%, and you simply cannot afford payments at 13%. Or, you payments are low today because the adjustable rate is low, but a few years down the road the rate jump, and your payments skyrocket. Most people cannot walk in, pay cash and buy a home outright. However, lending standards have gone to shit. It was the low down payment, combined with the adjustable rate and the refinance noted above that killed the housing market. There are other precedents. Depending on your age you might remember the skyhigh rates of teh early 80's. Loan and mortage rates shot to 18,19, 20%. Our mortgage (mom & dad) was a fixed 20 year at something like 5.5%. Looks prettygood when eveyrone else is paying 18%. Look at it this way: If you lock in at 5 or 6 %, odds are it can only go down one or two % more. Rates might go lower, but not by much (There is ZERO motivation for lenders to process mortages at 1 and 2%). However, if you lock in at 5 or 6% rates can always go waaaaay up. 12, 15, 20% have been seen previously. If your (in the general you meaning everyone terms) downpayment is a measly 5%, and the mortgage only 'works" for you if you scrimp, you cannot afford the mortgage. I do not care what the bank says. As a rule, if you cannot make the payments on a 15 year, I believe you are in over your head. Home ownership is great. Buy a home because you want to be a homeowner, and want freedom. But don't necessarily buy into the "its the best investment" crap. Because it isn't. Statisically speaking homes are the best investment most americans make only because its the only investment most americans make. Its easy to say "my parents bought this 30 years ago for 47,000 and they sold it for 147,000!. Its true, but most people forget to factor in things like property taxes, insurances, home renovations and upgrades, repairs, the money spend on ladder, lawmowers, and landscaping, furnaces and hot water heaters. If you make ahome purchase for investment purposes, it can be frustrating. if you buy a home because you want to be a homeowner, you can be more patient and forgiving. Homes offer one decent survival advantage. If it has a decent sized lot, you can grow a lot of food if you are a skilled gardener. Underwater, overwater, 'I'm ahead", I'm behind" all don't matter much if you bought a house you like, in an area you like, and your payments are fixed and affordable. That all changes if your payments were $800/month but they skyrocket to $1400 because interest rates doubled or tripled, or because your five year term is expired and you need to refinance. |
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I think there will always be money to loan to borrowers with the ability to repay it.
The standards for "being able to repay" have shifted in a more rational direction the last few years. I suspect they will continue to shift that way for the forseeable future. I don't know if the housing depression is over or not. I suspect that if it is over, it will be a long time before we see any substantial appreciation, unless there is rampant inflation, and that seems unlikely. I don't think you will be hurt financially by continuing to rent for a year or two. Some of the other issues such as whether the loan offers recourse beyond the security of the property are things to consider. Personally, I think it is a good time to be renting. Chances are the disruptions in the job markets are not over, and you may find that you have to move to find work. |
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If you are ready to buy a house both in mindset, and in finances then I would go for it. Make sure that you go with a fixed rate mortgage, and definitely be patient. It may take a few months to find just the right place for your situation. I would certainly not wait. If you are ready to buy, then go buy. You never know how the variable will change over time as far as financing and intrest rates, so get while the getting is good.
My wife and I were in your shoes a few years ago, and decided on a livable fixer upper type house. We paid 25K for a place that we can live in while we do all the repairs and upgrades needed to make it marketable in a few more years when we will be in to position to get our dream out in the sticks. Even with the money we have poured into repairs and such ( I do 99 percent of the work myself) we are still paying less per moth then the 700 dollars rent we shelling out for a place we had no fiscal intrest in. Good luck! A lot of people say that buying a house is one of the most stressful things you can do in life. Be patient, do dilligent research, and enjoy the experience! |
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I expect the economy to get much worse in the near-future. My question is, how will financing likely be affected by all the crap happening here and in Europe? I know we can find a house, but without financing, it won't be much use. FedGov has already indicated that ZIRP will be in effect through 2012. I don't see rates skyrocketing any time soon. AmeriSave is offering a 30 Year Fixed mortgage at 3.25% and a 15 Year Fixed mortgage at 2.75% right now. That is stupid-cheap money. |
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Wow. Thanks for all the replies. We owned a home until 2006, but sold it when I thought the market was near the top. I ended up being fairly close.
We will definitely get a fixed-rate loan. I read about the Carter-Reagan years. This will be a long-term home (I hope). I'm near 50 years old, and just want to pay the place off and live my life. A nice garden and some room to raise rabbits seem do-able with what we've seen on the MLS.. Funny how your priorities change as you age. Thanks again, everyone. |
| Run the numbers now and see how they look. I am in the mortgage industry and have NEVER seen houses more affordable and rates so low. Is there a chance they could go lower? Yes, but it is a lot easier for them to go higher. You don't have to buy at the ABSOLUTE BOTTOM of the market to get a smoking deal. In my area I see rents almost doubling due to high demand as well.... |
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In this area, home prices are still sliding down. Not tremendously, but still going down. Average mortgage interest rates last week hit an all-time record low. The fact is that while mortgage rates may be hitting bottom (actually going back to the bottom from 2-3 months ago), home prices in most markets have definitely NOT hit bottom yet. So, while you may be able to lock in a record low interest rate, you'll be buying an asset that you KNOW will be worth less a year from now. OTOH, if your plan is to stay in the home for 10-15 years, the interest rate lock is far more important than the 5-10% dip in asset value (over 1-3 years) before it starts going back up in the longer term (5-15 year time horizon). There's also the notion that you have to live somewhere, get the interest tax deduction and get better set up for preps and such that you wouldn't likely be able to do renting.
Tough call and somewhat risky either way. Also, since it's a buyer's market, you may be able to delete the recourse provisions in your contracts. Everything is negotiable in these deals. |
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In this area, home prices are still sliding down. Not tremendously, but still going down. Average mortgage interest rates last week hit an all-time record low. The fact is that while mortgage rates may be hitting bottom (actually going back to the bottom from 2-3 months ago), home prices in most markets have definitely NOT hit bottom yet. So, while you may be able to lock in a record low interest rate, you'll be buying an asset that you KNOW will be worth less a year from now. OTOH, if your plan is to stay in the home for 10-15 years, the interest rate lock is far more important than the 5-10% dip in asset value (over 1-3 years) before it starts going back up in the longer term (5-15 year time horizon). There's also the notion that you have to live somewhere, get the interest tax deduction and get better set up for preps and such that you wouldn't likely be able to do renting. Tough call and somewhat risky either way. Also, since it's a buyer's market, you may be able to delete the recourse provisions in your contracts. Everything is negotiable in these deals. Very good analysis! 
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The rates can only drop a little more at best (maybe another .5%-.75%, BUT they can go up a lot. I just bought a house after swearing I would not do it again but I got one 10% under appraisal with a 3.75% fixed. I look at it as nearly free money. If interest rates go up my assumable mortgage will look pretty good. Even if it doesn't it makes the prospect of renting it out pretty attractive. It is a buyers market and you can get some deals Good luck |
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Ahh, you appreciate the bind you're in with regards to the housing market, wider economy, as well as the credit and lending industry.
In my estimation, I'd say as a general rule with nation-wide perspective that we're going to see housing prices drop a bit more here in the next 6 to 18 months before we reach a good bottom. However, that's a generalized statement on the nation as a whole, individual local markets may have effectively bottomed out already or may continue to remain over-inflated for some time. Only a good, honest appreciation of the housing market in your area (as well as the wider local economy that supports said housing market) can give you quality insight. Further, changes in national trend may push the bottom further down or up. However, that's not to say that interest rates will follow the same trend at the same time. I have serious reservations about the Fed's Permanent Open Market Operations (POMO). The federal government simply cannot continue deficit spending while maintaining interest rates in the fraction of a percent range (effectively below zero interest rates, once you factor in inflation and honest risk/liquidity premiums). They've been able to prop up the pyramid by buying up government debt issuances, but that is simply not sustainable (the Fed is currently the largest single holder of U.S. debt, far outstripping China, as a result of these policies). However, investors will demand reasonable returns eventually... or Uncle Sam won't be able to sell his bonds. Given the utterly laughable stabs the government has made at reducing deficit spending, I doubt we're going to see frugality riding in like the cavalry to save the day. Given the fact that numerous lending institutions STILL have their balance sheets vastly overinflated by near-fictional mortgage assets (between over-inflated and noncollectable loans on the one hand, and physical assets left to rot until remediation cost exceeds realizable value on the other hand), and given the fact that there is no incentive to prune off this dead wood because doing so would further restrict the lending ability (and hence income) of these banks, I see a credit crunch and/or a massive interest rate hike coming BEFORE housing effectively bottoms out. My information and my gut tells me that if you want a good spit of land, now's the time to lock in a nice, low interest rate loan. You can expect the fair value of your land will likely drop a little (unless other factors are at work, such as would be the case with good, producing agricultural land), but you can expect interest rates to start taking off like a rocket (if we're lucky, that is - the other options range from some Rube Goldberg Clever-Little-Plan by the Fed and Uncle Sam, to a monetary collapse). |
| If you find what you like and can afford it now, I would say go for it. You can refiance later if they drop, but I doubt it. Otherwise rates just go up. Where I live, housing is impossible to find and the prices are at all time highes. Rent here is out of control. |